How To Join The Hedge Fund Industry's '$1 Billion Club'

Preqin's latest report on the hedge fund industry is out, and one of the main takeaways: most of the money parked in hedge funds is controlled by a small number of firms.

Preqin reports that the "$1 billion club," or hedge fund managers that have more than $1 billion in assets under management, is made up of just 505 of the 4,621 active fund managers.

These are five traits the largest funds have, and if you have dream of joining $1 billion club, this is a good place to start.

1. Get an investment from a pension fund. This graphic from Preqin shows where hedge funds with more than $1 billion under management get their capital, and 40% comes from either public or private pension funds. 16% of capital comes from sovereign wealth funds, a 9% increase over last year.
   
   
   

   Preqin

2. Find North American investors. The biggest hedge funds mangers get more than half of their capital from North American investors. Preqin notes, however that this ratio has fallen over the last year. From Preqin: "The majority of investors within the $1bn plus group are based in North America, although over the last 12 months, the proportion of $1bn investor capital represented by this region has decreased from 67% to 54%." This chart breaks down investor location.
   
   
   

   Preqin

3. Invest in one area or invest in all of them. Preqin notes that among hedge funds with more than $20 billion in assets, 29% offer a single strategy and 38% offer six or more strategies. This graphic shows how many strategies the largest fund managers offer investors, grouped by assets under management.
   
   
   

   Preqin

4. Set up shop in New York or London. Of the largest hedge fund managers, 174 are based in New York, while 80 are based in London. Connecticut ranks third with 35. That these locations dominate is largely due to New York and London's primacy as hubs of global finance. Preqin notes, however, that despite the small number of locations for these funds, the largest fund managers call 25 different countries home.
5. Hang around and outperform. This seems like an obvious point, but with more than 4,600 managers running 10,500 funds, its worth keeping in mind that if you start a hedge fund tomorrow, it will be several years, and perhaps decades, before you are counted among the largest fund managers. Preqin notes that, "the largest managers have typically shown consistent performance through many market cycles and demonstrated that they can outperform competitors." This table shows how long, on average, the largest firms have been around.
   
   
   

   Preqin